Global Industry Analysis

Integration vs. Responsiveness:

matching integration which is the strategic coordination of business with local responsiveness

Administrative Distance

•Absence of colonial ties •Absence of shared monetary or political association •Political hostility •Government policies •Institutional weakness

Related and Supporting Industries

•Cost-effective inputs •Innovative inputs, joint innovation

Company Policies

•Create pressures for innovation •Seek out the most capable competitors as motivators •Establish early-warning systems •Improve the national diamond •Welcome domestic rivalry •Globalize to tap selective advantages in other nations •Use alliances only selectively Locate the home base to support competitive advantage

Economic distance

•Differences in consumer incomes •Differences in cost and quality of natural resources; financial resources; human resources; infrastructure; intermediate inputs; information or knowledge

Cultural Distance

•Different languages •Different ethnicities; lack of connective ethnic or social networks •Different religions •Different social norms

Firm strategy, structure and rivalry

•Fit between strategies and comparative advantage •Goals of firms and owners •Individuals' values and attitudes •Strong local rivals induce innovation and global expansion

Government

•Focus on specialized factor creation •Avoid intervening in factor and currency markets •Enforce strict product, safety & environmental standards •Sharply limit direct cooperation among industry rivals •Promote goals that lead to sustained investment •Deregulate competition •Enforce strong domestic antitrust policies •Reject managed trade

Geographic Distance

•Physical remoteness •Lack of common border •Lack of sea or river access •Size of country •Weak transportation or communication links •Differences in climates

Factor Conditions

•Specialized factors after sustained and heavy investment •Disadvantages lead firms to innovate

PESTEL Framework

Political, Economic, Sociocultural, Technological, Legal

Socio-Cultural Dynamics

Population growth Cultural dynamics

Technological Quality

Innovation system R&D and patents Technology use and automation

Legal Quality

Legal tradition Judicial system Rule of law and corruption Laws and regulations (antitrust, intellectual property, labor, environmental, foreign trade and investment...)

Diamond Framework

tries to explain why certain industries within a nation are competitive interationally whereas others are not

Demand Conditions

•Sophisticated and demanding home buyers •Lead users

CAGE Framework

(Cultural, Administrative, Geographic, Economic): Manage differences: reduce differences (sales more) or arbitrage differences (buy better)

Environmental Quality

Climate Natural resources

Environmental Dynamics

Climate change impact Exploitation rates of natural resources

Absolute and relative advantage

Countries specialize and trade in goods in which they are best or better (because of land, labor, or capital endowments)

Economic Dynamics

Economic growth, crises Interest, inflation and exchange rates

Economic Quality

Economic size Wealth, disposable income, and employment

Foreign investment: Internationalization process

Firms invest first in countries that are closer to the home country in psychic distance (factors that limit the use of managers' knowledge abroad), and later in more distant countries (stepping stones) •

Gravity models

Trade between countries increases with the size (GDP, population...) and proximity (geography, language, culture...).

Legal Dynamics

Regulatory changes

Technological Dynamics

Technological diffusion

Effect of the pressures for local responsiveness?

-Differences in customer needs -Differences in distribution channels -Availability of substitutes and need to adapt -Market structure -Host government demands

Effect of the Pressures for Global Integration

-Importance of multinational customers -Presence of multinational competitors -Investment intensity -Technology intensity -Pressure for cost reduction -Universal needs -Access to raw materials and energy

Political Dynamics

Political stability Political conflict and violence

Poltical Quality:

Political system Political rights and civil liberties Government ideology State effectiveness

Socio-Cultural Quality

Population Distribution (age, income, location) Education, health and safety Culture, lifestyle, work attitudes